Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes [Abstract]

Income Taxes

Note 14 – Income Taxes

The Company and its subsidiary are subject to U.S. federal and state income taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Income tax expense was as follows:

	2023		2022
	(In thousands)
Current
Federal	$	300	$	700
State		398		218
Deferred
Federal		1,046		944
State		241		551
Total	$	1,985	$	2,413

Effective tax rates differ from the federal statutory rate of 21% applied to income before income taxes due to the following:

	2023			2022
	(In thousands)
Federal statutory rate times pre-tax net income	$	1,370		$	1,705
Effect of:
State taxes, net of federal benefit		512			623
Earnings from bank owned life insurance		(9	)		(9	)
Low-income housing credits		–			(6	)
Change in valuation allowance		80			–
Tax effect of stock-based compensation		14			25
Other, net		18			75
Total	$	1,985		$	2,413

Year‑end deferred tax assets and liabilities were due to the following:

	2023			2022
	(In thousands)
Deferred tax assets:
Allowance for credit losses	$	2,008		$	1,063
Accrued liabilities		580			555
State income taxes		30			45
Stock compensation		196			226
Net operating loss carryforward		1,982			2,616
Partnership investment		340			257
General business credit		1,962			1,962
Alternative minimum tax credit		11			5
Net unrealized loss on securities available-for-sale		5,815			7,388
Right of use liability		196			266
Fair value adjustment on acquired loans		223			291
Other		212			332
Total deferred tax assets		13,555			15,006
Less: valuation allowance		(449	)		(369	)
Total deferred tax assets, net of valuation allowance		13,106			14,637
Deferred tax liabilities:
Section 481 adjustments to bad debts		–			(7	)
Deferred loan fees/costs		(1,743	)		(776	)
Basis difference on fixed assets		(748	)		(723	)
FHLB stock dividends		(98	)		(90	)
Nonaccrual loan interest		–			(8	)
Prepaid expenses		(180	)		(186	)
Right of use assets		(189	)		(256	)
Core deposit intangibles		(610	)		(719	)
Total deferred tax liabilities		(3,568	)		(2,765	)
Net deferred tax assets	$	9,538		$	11,872

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluated both positive and negative evidence, the amount of taxes paid in available carry‑back years, and the forecasts of future income and tax planning strategies. Based on this analysis, management determined that, as of December 31, 2023, a valuation allowance of $449 thousand was required on the Company’s deferred tax assets, which totaled $9.5 million (net of valuation allowance). As of December 31, 2022, a valuation allowance of $369 thousand was required on the Company’s deferred tax assets, which totaled $11.9 million (net of valuation allowance).

As of December 31, 2023, the Company had federal net operating loss carryforwards of $536 thousand, all of which can be carried forward indefinitely. The Company also had California net operating loss carryforwards of $21.8 million which will expire in 2031 through 2041, if not utilized. The Company also had federal general business credits of $2.0 million, which will expire in 2030 through 2041, if not utilized.

The Company did not have any unrecognized tax benefits as of December 31, 2023 or 2022.

2022 is the most recent tax year for which the Company has filed federal and state income or franchise tax returns. Federal tax years 2020 through 2022 remain open for the assessment of Federal income tax. California tax years 2019 through 2022 remain open for the assessment of California franchise tax. Washington, D.C. tax years 2020 through 2022 remain open for the assessment of D.C. franchise tax. The Company is not currently under examination by any tax authorities.